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Tuesday, October 20, 2009

Last night I put a stop on DYY at 7.80, today DYY sold at 7.80. I know the but hey id rather walk away with a small profit then no profit. SVM is down but since there is not stop there it will continue to grow as the dollar weakens.

Sunday, October 18, 2009

To quote Wikipedia a Commodities are "good for which there is demand, but which is supplied without qualitative differentiation across a market." Commodities are goods such as copper, paper, milk,corn, oil etc. I like Commodities because they are easy to predict and are greatly effected by the dollar. As we all know the dollar gets weaker just about every week causing Commodities to become more valuable. This is why im spending my time investing in Commodities right now. My favorite is silver. I have been making trades with silver etfs and been purchasing silver coins. If the dollar completely craps out the prices of silver and gold will be tremondous and happily traded in other countries.

Saturday, October 17, 2009

Earlier this week beginning Wednesday October 14th, the Dow Jones Industrial started testing new highs just over 10,000 and closing just over 10,000. The following day Thursday October 15th, we started the day under 10,000 but thrusted up over 10,000 by the end of the day. Friday there was a few highs barely over 10,000 and finally we ended the day at 9995.91. The Dow Jones right now is at a place where anything can happen. It can either gain strengh and shoot up to 11,000 over the next couple of weeks or the weakening Dow Jones might turn around and start heading down for a while. How low will the Dow Jones go? I have no clue, but if you are familar with elliot wave theories or fibonacci retracements the Dow Jones is likely to crash hard into the ground. Since bulls owned the Dow Jones since the 1970's it is possible that the Dow Jones might drop down to the support we saw in the 1970's which would be around 1,000. That can be completely devastating!

What is also interesting, if we were to compare the dow to the price of gold, back in 1999 when the Dow Jones first started testing new highs around 10,000, the Dow was worth about 40 oz of gold. This week the second time the dow is testing highs at 10,000 the dow is only worth about 9 oz of gold. In order to have the same economy with the same dow to gold ratio the dow today would have to be at approx 42116.

Personally I believe the Dow Jones will have a severe crash in the near future. My hope is that if it does we can go back to trading in silver and gold.

A friend and I had this discussion recently with GM as the example. I thought this might be a good topic for my blog!

GM (General Motors or Government Motors) must have been doing great at one point. They had benifits, high salaries, and a ton of workers who created a huge supply of cars to fill a huge demand of cars. Out of no where the demand fell, people either had less money to spend or decided to that a competor had a better product. GM stayed positive still creating a vast amount of cars while the demand decreasing. Spending all this money building cars with no one buying just means GM is destroying wealth. The supply was too great, so cutting costs and profit margins was not effective enough to create a decent profit. The owner has several choices. Reinvent the cars with a feature noone else has, start creating a new products, downsize, or sell.

If GM decided to down size then they would lay off a ton of workers, cut salaries and create a smaller supply to fill a smaller demand. Over time after the market corrects itself and the demand will increase so will employment, salaries and profits. If GM decided sell, some one will come along buy up GM reinvent it and try to increase profits by fixing the flaws.

If the Governement bails them out or takes over, it would destroy wealth. If GM is failing giving GM a billion will only prolong its demise. If their is no demand the business will fail. If you give a company a billion dollars to create a supply where there is no demand all you are doing is destroying wealth, wasting efforts, wasting money, and wasting time creating products that wont sell. If the government bails out any company they are either printing up money out of thin air causing the exisiting money to loose its value or taxing people and using those taxes to restore that company. Either method used will hurt the people or the buyers. If more of our money is taken away from us, obviously we have less money. If we have less money we are less likely to buy causing demand to shrink.

Now since GM has been renamed Governement Motors, you dont realize it but whether or not they sell cars they are getting your money. If you buy from GM your moneys going to the governement, if dont buy from GM your tax dollar will go into GM keeping them alive. Let nature take its course! GM is becoming a burden to society by destroying wealth.

As for layed of workers they can find employment elsewhere contributing to other industries or start new companies eventually employing others.

Thursday, October 15, 2009

Obviously the greater the risk the greater the reward. I purchased 100 shares of DYY which is 2 times levered and 200 shares SVM. I purchased these shares thinking they are on their way to making new heights being both are about even with older highs. The next line of resistance can make me a mean profit. Lets see what happens.

People who ride their stocks up and down like roller coaster are merely just going from red to green over and over and in the long run it gets risky. In this economy you never know what companies may tank. Remember Fanny and Freddie? That was a disaster. As long as we are following the theories of keynesian economics, really anything can happen at anytime.

Unfortunately my investment with SLV ended today. But not to worry when SLV gets out of this valley and prices start climbing again I will be willing to buy again. But for now an extra $320.02 in my pocket will be welcomed. So here is how I secured my profit. I purchased SLV for 15.88 on September 25th. This week SLV was having a difficult time closing over 17.50 so I had reason to believe that SLV was going to turn around soon. And it did.

Last night I moved my stop up from 17 to 17.20. I Enjoy my job but the problem with it is I cant monitor my investments through out the course of the day and I love trading! So my thinking last night was to secure more of what I had. The way is it allows you sell a stock at a price you are comfortable with. For example a stop at 17.20 means if the stock drops below 17.20 as seen today just before 1( I would say lunch time but I go for lunch at 2), my stock will automatically sell at 17.20 giving me my profits today. Another way to secure profits is with a trailing stop. In a trailing stop, the stop will follow the price of the stock and sell when that stock reaches that stop price. At one point I had purchased CTCM for 5.53, ( this is going back, this is one of the few times I used a trailing stop. ) when CTCM reached 12.50 I put a .50 trailing stop on it. In other words if CTCM is being traded for 12.50 my .50 trailing stop was at 12. when CTCM reached 13, my trailing stop moved up to 12.5. When the stock price moved up to 14 my trailing stop moved up to 13.50. Then when CTCM's stock priced dropped down to 12 dollars, CTCM automatically sold for 13.50 where as if I just left a regular stop at 12 I would have lost that extra 1.50 points of profit. Since I go big 1.5 can equal a lot of money. Why use stops to secure your profits? because if the stock crashes you will get out ahead with profit opposed to loosing everything.

The moral of the story is use stops to secure your profits and get out while your ahead.

Tuesday, October 13, 2009

I'm still some what new to trading so please bear with me. This would be considered my trading mentallity. I spoke with a friend recently and she told me she had bought stock back in 2006. In 2007 and 2008 her retail stock did very well that is until the stock market crashed, and her stock still has never recoverd. It took just a few short weeks to go into negative numbers(I dont have exact numbers but I believe she trippled her money or so she says and lost it). She told me to stay away from the stock market. I started studing candle stick charting made a few successful trades, and wanted to show my thinking verses my friends. Alot of people I speak with have this mentality to be a bull where they are only interested in long term investment spanding over years. Me I want to get in, get out, go big and go home.

Below illustrates my investment with SLV which is an ETF which represents silver. on September 25th I bought 200 shares of SLV for 15.88. Two weeks after SLV started making highs over 17 to be exact the highest we have seen was 17.52 then following day 17.42, and today 17.48. I beleive the SLV might reverse soon so I put a stop at 17.00, so if the SLV goes down to 17 it will automaticlly sell securing 1.12 points worth of profit. If SLV starts making new highs again I will eventually raise my stop. It doesnt matter what happens I will be making a minnimum of 224. So basiclly my mentallity is get in secure your profits and sit back until the market kicks you out. The bigger the risk the bigger the reward!

Sunday, October 11, 2009

After the last post I just wrote Bad Economist vs Good Economist I want to take a look at this video of Ben Bernanke. Ben Bernanke, the chairman of the federal reserve is being questioned about lending out half a trillion dollar to forgiegn institutes. Whats bad about this unapproved loan is the money was just printed out of thin air and and sent over seas without approval from congress to increase short term interest rates meanwhile devalueing the dollar and causing inflation and prices in the united states to increase. Now giving out a loan is a big risk, you are taking a risk that these failing instiutes will no longer fail and be able to pay you back with interest over time. What if this is a temporoary cure and the instutites still fail and need to deafult on those loan? Another question, if your broke, why would you lend out half a trillion dollar to another person that is broke? If your lending out a dollar to a person or half a trillion dollars to a person, wouldn't you at least remeber who you lent the money too.

I started reading Henry Hazlitts book this weekend, "Economics In One Lesson" and want to share what I got out of the first two chapters, Bad Economist vs Good Economist. So a bad economist will only see or project the immediate economic effects from an event while a good economist will see and project the immediate and long term econimic effects of an event.

Heres Henry Hazlitt's example:A kid takes a brick and smashes a bakers window, runs away and gets away. A Bad economist would pretty much say sucks for you now you need to spend $250 to have that window replaced. A good economist would pretty much say that sucks but hey the $250 you were saving will now be spent on the repair. The $250 will be put back into the economy, paying the salaries of the person who created and cut the glass, and the salaries of the poeple who came in and replaced the window. Yeah you loose some of your savings, but your $250 had a great effect on a ton people you don't know, securing their jobs for one more day keeping the economic cycle going.

My example:A stimulus plan was used to give the people $600 to encourage spending. Other similar situations would consist of bank bailouts, corportate stimulus, etc. I would say the the bad economist might think this great, we'll print a lot of money and just give the money to the entire working class or to banks or other failing companies. Giving the people more money to spend and keeping banks and other companies in business is good for the economy. (If this is the case why not just give everyone 1 trillion dollars when they are born so they will never have to worry about money ever again, allowing us to living in a free utopian society) anyway I feel the good economist might feel stimulus is horrible for the economy! If you are just merely printing up money out of thin air then the money already out there will loose its value becoming worth even less and causing inflation to rise. Your giving people $600 but in return the value of the dollar will decrease causing the prices of commodities to increase. Your giving people $600 dollars but through taxes and elavated food, metal, etc prices will increase and the people will be suffering later on down the road. As for banks and business (A) maybe it was there time to go due to people not liking their interest rates, products, and services, (B) maybe people would love to contribute to the wellbeing of those business but people just don't have the money. Instead of devalueing the dollar lets raise bank interest rates, encourage investing, and cut taxes. Doing so will honestly give the people more money to circulate, and hopefully kick start the economy over time.